NMHC Index Says Multifamily is Playing a Bigger and More Important Role

Article originally posted on Globe St. on April 22, 2024

The just-released quarterly survey for April 2024 conducted by the National Multifamily Housing Council confirms what many owners and operators already know: nationally, the market is looser – meaning there are higher vacancy rates in the sector and lower rent growth.

The NMHC index is set up so that a score of 50 represents equilibrium, with a score below that showing weakness in the market and a higher score indicating the market is improving. The new report reveals that three of the four components used to measure the health of the market are performing poorly.

The good news was that the Sales Volume Index managed to rise to 52 – the first quarter in two years with higher deal flow, with 21% of respondents reporting more sales compared to just 6% in January.

The Market Tightness Index came in at 41 indicating, for the seventh consecutive quarter, high vacancies and low rent growth. Even so, that was an improvement over the January 2024 figure, where the score was just 23.

The Equity Financing Index came in at 49, higher than the 44 recorded in January. Though three out of five respondents found availability unchanged, 17% thought it had improved, and 18% thought it was worse.

However, the score of 44 for the Debt Financing Index was well below January’s score of 66. In an online discussion of the results between Chris Bruen, NMHC’s senior director of research, and Matt Vance, CBRE’s senior director and America’s head of multifamily research, Bruen said the drop could be attributed to the Fed’s decision to push back interest rate cuts as inflation remains high.

Vance said he still expects two rate cuts this year in July and December. He said there is less liquidity now but the market is still fairly stable, not volatile.

Both men also agreed that the shelter component of the Consumer Price Index (CPI) is keeping inflation higher. Rent growth accounts for 34% of total CPI and 43% of core CPI, Vance said, and is the biggest contributor to inflation.

The tight market for single-family and small multifamily units is creating a shortage of homes and for-sale activity, as homeowners paying low interest rates choose to stay put. This is having the effect of causing renters to rent for longer, too, Vance said. “Fewer and fewer people are leaving the rental market, driving more demand for multifamily housing formation and job growth. This is driving demand for multifamily and helping preserve the existing level of occupancy.”

Vance said there is a shortage of 3.8 million homes nationally. “Multifamily is playing a bigger and more important role in the U.S. housing industry today than it maybe ever has. We are building more than we need today, but supply and demand is doing its job. With more single-family development and a pullback in new starts by owners and operators, we expect a reprieve from high supply in 2025 to 2026.”